N. Ky. Area Dev. Dist. v. Snyder

• Citation: 570 S.W.3d 531
• Decision Date: 27 September 2018
• Docket Number: 2017-SC-000277-DG
• Parties: NORTHERN KENTUCKY AREA DEVELOPMENT DISTRICT, Appellant v. Danielle SNYDER, Appellee
• Court: United States State Supreme Court (Kentucky)

570 S.W.3d 531

NORTHERN KENTUCKY AREA DEVELOPMENT DISTRICT, Appellant

v.Danielle SNYDER, Appellee

2017-SC-000277-DG

Supreme Court of Kentucky.

SEPTEMBER 27, 2018

Rehearing Denied April 18, 2019

COUNSEL FOR APPELLANT: Jennifer H. Langen, Jeffrey C. Mando, Covington, Adams, Stepner, Woltermann & Dusing, PLLC.

COUNSEL FOR APPELLEE: Shane C. Sidebottom, Covington, Ziegler & Schneider, P.S.C.

OPINION OF THE COURT BY CHIEF JUSTICE MINTON

Kentucky Revised Statute ("KRS") 336.700(2) prohibits employers from conditioning employment on an existing employee’s or prospective employee’s agreement to "waive, arbitrate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled...." When Northern Kentucky Area Development District ("NKADD") conditioned Danielle Snyder’s continued employment on her agreement to arbitrate any dispute that may arise between them, that agreement violated KRS 336.700(2). As a result, the arbitration agreement between NKADD and Snyder—the enforcement of which is the basis of the case before us today—is unenforceable as a matter of state statutory law.

NKADD correctly asserts that the Federal Arbitration Act ("FAA")¹ broadly prohibits discrimination against arbitration agreements. It then argues that the FAA preempts the operation of KRS 336.700(2) under the facts of this case. But, rejecting NKADD’s argument, we hold that no such discrimination occurred here because KRS 336.700(2) does not prohibit arbitration agreements, limit the power of persons to enter voluntarily into arbitration agreements, or single out arbitration agreements in any way. Correctly viewed, KRS 336.700(2) is an anti-discrimination statute that prohibits employers from conditioning employment on an agreement to, not only arbitration, but also any waiver or diminution of the employee’s existing or future rights or claims for benefits arising out of employment. So, on discretionary review, we affirm for different reasons the Court of Appeals' decision that affirmed the trial court’s order denying NKADD’s motion to compel enforcement of the arbitration agreement. And we remand this case to the trial court for further proceedings consistent with this opinion.

I. BACKGROUND.

NKADD is a government entity created under KRS 147A.050 et. seq. It is funded by taxpayers to administer social programs in an eight-county area of Northern Kentucky. It receives federal funds for various social programs, including an elder-abuse program, a long-term-care ombudsman program, and a family caregiver program. Additionally, using federal funds, NKADD partners with local food banks to distribute food to lower-income households and administers a small-business loan fund. It also provides employment services through its Northern Kentucky Workforce Investment Board to supply workers to businesses and participates in a regional public-private partnership working to supply employees to businesses in the Northern Kentucky-Greater Cincinnati area.

Danielle Snyder worked for NKADD as an administrative purchasing agent. While employed there, Snyder had to sign an arbitration agreement mandating arbitration of any dispute she had with NKADD. The agreement makes clear, "As a condition of employment with the District, you will be required to sign the attached arbitration agreement." Additionally, "You may revoke your acceptance of the agreement by communicating your rejection in writing to the District within five days after you sign it. However, because the agreement is a condition of employment, your employment and/or consideration for employment will end via resignation or withdrawal from the process."

Snyder filed an action in the trial court asserting claims under the Kentucky Whistleblower Act ("KWA") and the Kentucky Wages and Hours Act ("KWHA") after NKADD terminated her employment. NKADD filed a motion to stay the proceedings and compel arbitration based on the arbitration agreement. The circuit court denied NKADD’s motion, and NKADD appealed.

The Court of Appeals affirmed the trial court’s denial, explaining that NKADD is a creature of statute, and the wording of two Kentucky statutes, which purportedly prohibit an employer’s conditioning employment on the employee’s agreement to arbitrate any disputes, makes ultra vires any arbitration contract by NKADD forcing arbitration in this way. Therefore, the Court of Appeals reasoned, the FAA cannot compel arbitration between the parties because NKADD never had the authority to enter into an arbitration agreement in the first place, and "federal law does not pre-empt the authority of the Commonwealth to deny the authority of its [agencies] to enter into arbitration agreements."

II. ANALYSIS.

We granted NKADD’s motion for discretionary review to consider whether the FAA preempts Kentucky’s legislative enactment to preserve employee rights, KRS 336.700(2), because it seeks, among other broadly stated areas, to prohibit employers from conditioning employment on the employee’s agreement to a contract provision mandating arbitration in the event of a dispute between them. We ultimately conclude that the statute does not run afoul of the FAA under the facts of this case. But first, we must determine whether NKADD truly does not have the power to condition employment on agreement to arbitration.

A. NKADD and its power.

"[A]dministrative agencies have no inherent authority and may exercise only such authority as may be legislatively conferred."² It is axiomatic that NKADD, as a state agency, only has the power that the General Assembly gives it.

NKADD exists by virtue of KRS 147A.050(7). The precise legal term to describe the creature NKADD may be elusive, but the parties and the lower courts have not quibbled over the fact that NKADD is a Kentucky state agency.

Like all area development districts, NKADD is operated by state employees under KRS 147A.060 and 147A.070 and receives taxpayer funding. The governing body of NKADD, its board of directors, entirely derives its power from KRS 147A.080 and 147A.090, the statutes that detail all of the power that the General Assembly has granted to NKADD. Among other powers, the board of directors may "[m]ake and enter into all contracts or agreements necessary or incidental to the performance of its duties"³ and "[p]erform such other and further acts as may be necessary to carry out the duties and responsibilities created by KRS 147A.050 to 147A.120."⁴

The text of these statutes alone does not explicitly allow NKADD to mandate agreement to arbitration as a condition of employment. At best, the power to condition employment on agreement to arbitration may be implied by the broad language used in the statutory provisions outlining NKADD’s powers and responsibilities.

Regardless, we find explicit statutory limitation on the ability of NKADD to condition employment on agreement to arbitration. KRS 336.700(2) states:

Notwithstanding any provision of the Kentucky Revised Statutes to the contrary, no employer shall require as a condition or precondition of employment that any employee or person seeking employment waive, arbit rate, or otherwise diminish any existing or future claim, right, or benefit to which the employee or person seeking employment would otherwise be entitled under any provision of the Kentucky Revised Statutes or any federal law.

KRS 336.700(1) defines employer to mean "any person, either individual, corporation, partnership, agency, or firm, that employs an employee."

The parties do not challenge the applicability of KRS 336.700(2) to NKADD in this case. Indeed, KRS 147.080(10) deems an "area development district organization" a "public agency," which appears to fall within the ambit of the definition of employer in KRS 336.700(1), which includes "agenc[ies]."

Although one could argue that the definition of employer in KRS 336.700(1) appears to contemplate private, not public, entities,⁵ we dealt with a similar situation in Madison County Fiscal Court v. Kentucky Labor Cabinet.⁶ There, we considered the exact same definition of employer⁷ for the purpose of the applicability of KRS 337.285, the wage and hour requirements for overtime pay, to public entities, including the Madison County Fiscal Court, Central Campbell County Fire District, and ten municipal corporations.⁸ We concluded "municipal corporations" fell within the ambit of "corporation[s]" as included within the definition of employer.⁹ In conformance with the spirit of Madison County, we find NKADD, an agency of the Commonwealth, constitutes an "agency" contemplated by the definition of employer in KRS 336.700(1) such that KRS 336.700(2) applies.

We conclude that Kentucky state-created entities do not have the power to compel, as a condition of employment, any employee agree to arbitrate any claim, right, or benefit he or she may have against NKADD. Although NKADD appears to have broad power to enter into agreements and define the terms of those agreements, KRS 336.700(2) acts expressly prohibits NKADD from conditioning employment on an agreement to arbitrate.

We therefore conclude that the General Assembly intended to forbid NKADD from having the power to condition employment on agreement to arbitration by the express language of KRS 336.700(2).¹⁰

When a government entity acts beyond its power by violating an express statutory prohibition, its actions are said to be "ultra vires ... and therefore ... void."¹¹ KRS 336.700(2) is a direct limitation on the power of state agencies to condition employment of their state employees on agreement to an arbitration clause; in fact, this statute outright prohibits such act.¹² Because NKADD, a state agency affected by the prohibitions of KRS 336.700(2), never had the power to force Snyder to agree to arbitrate disputes arising between them as a condition of her employment, the resulting arbitration agreement is void.

B. The FAA does not preempt KRS 336.700(2) in this case.

Although we have...